Gold Buoyed as Hedge Fund Titan Sees Leaders `Playing Chicken'

Updated on
  • Spot price gains to highest since June as Korean tensions rise
  • Dalio advises investors to hold 5% to 10% of assets in bullion

In today's 'Futures in Focus,' Ira Epstein, senior market analyst at Ira Epstein Division of Linn & Associates, and Bloomberg's Vonnie Quinn examine the impact on the gold market from tensions between the United States and North Korea. They speak on 'Bloomberg Markets.' (Source: Bloomberg)

Gold advanced to the highest in two months as the spike in tensions between the U.S. and North Korea fanned demand, with hedge fund billionaire Ray Dalio flagging rising risks including “two confrontational, nationalistic, and militaristic leaders playing chicken with each other.”

Bullion for immediate delivery rose as much as 0.4 percent to $1,292.10 an ounce, the highest since June 7. It traded at $1,286.10 by 11 a.m. in New York, according to Bloomberg generic pricing. The metal is up 2.2 percent this week, and 12 percent in 2017. Miners’ shares rose.

Gold is among the top-performing commodities this year as investors weigh geopolitical risks and a weaker dollar. President Donald Trump intensified warnings to North Korea this week, boosting haven demand as he promised a massive response to any strike against the U.S. or its allies. Dalio, who manages Bridgewater Associates, said emerging risks were more political than economic, which made them challenging to price, according to a LinkedIn post.

“Gold remains in demand as a safe haven and is still on the up,” analysts at Commerzbank AG including Eugen Weinberg wrote in a note.

The U.S. consumer-price index rose 1.7 percent in July, from year earlier, a report showed Friday, trailing the 1.8 percent median estimate of economists surveyed by Bloomberg. A more sustained ebb in price pressures could make it tougher for the U.S. central bank to stay on course for one more rate increase this year. Low rates boost the appeal of gold, which doesn’t pay interest.

On Thursday, New York Fed President William Dudley cautioned that it will “take some time” for inflation to reach the central bank’s 2 percent target, the latest official warning that price pressures remain muted.

‘Hellacious War’

In his post -- which was decorated with a photo of a gathering storm -- Dalio recommends investors consider placing 5 percent to 10 percent of their assets in gold as a hedge against political and economic risks. In addition to the North Korean situation, Dalio also wrote that he sees rising odds of Congress failing to increase the U.S. debt ceiling, leading to a technical default.

As Trump and Kim Jong Un trade barbs, Dalio wrote that “the world is watching to see which one will be caught bluffing, or if there will be a hellacious war.” He added: “When it comes to assessing political matters (especially global geopolitics like the North Korea matter), we are very humble. We know that we don’t have a unique insight that we’d choose to bet on.”

Gold miners are benefiting from the jump in prices. The FTSE/JSE Africa Gold Mining Index rose 1.1 percent. AngloGold Ashanti Ltd. and Harmony Gold Mining Co. Ltd. advanced.

In other precious metals:

  • Spot silver headed for the biggest weekly advance in more than a year.
  • Platinum gained, extending the longest run of weekly gains in a year, while palladium was little changed on Friday.

— With assistance by Ivan Levingston, and Eddie van der Walt

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